2009: “The Year of the Ponzi Scheme”

According to a recent Associated Press (AP) analysis, more than 150 Ponzi schemes collapsed in 2009, compared with about 40 in 2008. In other words, nearly four times as many Ponzi schemes imploded in 2009 than in 2008. The AP’s analysis included criminal cases at all U.S. attorney’s offices and the FBI, as well as criminal and civil actions taken by state prosecutors and regulators at both the federal and state level.

In 2009, tens of thousands of investors lost more than $16.5 billion in these investment scams, including the life savings of many people.

The Securities and Exchange Commission describes a Ponzi Scheme as a type of illegal pyramid scheme named for Charles Ponzi, who duped thousands of New England residents into investing in a postage stamp speculation scheme back in the 1920s. Money from new investors is used to pay off earlier investors until the whole scheme collapses. Often there is no “investment” occurring – money is simply being shifted from one person to another, with the initiator of the investment scheme skimming money off the top.

The following statistics from the AP highlight the proliferation of such investment scams:

-The FBI opened more than 2,100 securities fraud investigations in 2009, up from 1,750 in 2008. The FBI also had 651 agents working in 2009 on high-yield investment fraud cases, which include Ponzis, compared with 429 last year.

-The SEC this year issued 82 percent more restraining orders against Ponzi schemes and other securities fraud cases this year than in 2008, and it opened about 6 percent more investigations. Ponzi scheme investigations now make up 21 percent of the SEC’s enforcement workload, compared with 17 percent in 2008 and 9 percent in 2005.

-The Commodity Futures Trading Commission filed 31 civil actions in Ponzi cases this year, more than twice the 2008 amount.

Experts attribute the recession responsible for the collapse of so many of the Ponzi schemes, as well as heightened awareness and regulatory scrutiny that resulted from the infamous Madoff scandal.

Blum Law Group routinely represents investors in recovering Ponzi scheme losses, including investors who lost money in Medical Capital Holdings, Provident Royalties, DBSI and many other investments.